“A lot of businesses are cash-strapped. I have just been up to the Blue Mountains and everyone was talking about how empty the place is of tourists.
“The big companies won’t be hindered by liquidity yet. But the problem is people are staying home and inventories are not where they are supposed to be. So this could lead to layoffs. When things dry up quickly, firms could end up with a liquidity crisis.”
“It is comparable to 9/11 because everyone thought the attacks were going to be global and security was ramped up.
— Kevin Hassett, former Trump adviser
If the virus spread beyond April then concerns about credit markets would intensify and the effectiveness of central banks, monetary policy would be questioned.
After announcing Dr Hassett’s departure last June from the Council of Economic Advisers, President Trump tweeted that the economist was a “true friend”. Dr Hassett has a similar view of Mr Trump, suggesting he was a “joy to work with”.
Dr Hassett said he did not know whether the crisis would assist in Mr Trump’s re-election but said its characteristics were similar to those of the September 11, 2001 terrorist attacks.
“It is comparable to 9/11 because everyone thought the attacks were going to be global and security was ramped up. For a month or two after, markets were still panicking.
“I think this virus has spread so rapidly that I think it’s creating such a big unknown like we have never seen before.”
What has exacerbated the impact on international sharemarkets has been poor information. “The Chinese data are so difficult to read,” Mr Hassett said, “And so I think Australia’s data on exports to China are going to be watched very carefully because Australian data is so solid.”
“I would also expect that, because Australia is so close to China that this will end up being a net negative for you.
“But markets go up and down. I don’t think anyone thinks this will be a permanent shock. We have learnt that over time stocks go back up.”
Dr Hassett, who authored a book in the late 1990s called Dow 36,000, argued that the sharemarket was a good place for long-term investment.
“If the long-run growth path is unaffected by the current crisis, then earnings will eventually grow again. Over long time horizons, compounding of growth has tended to overwhelm short-term panics.”